Ronald Reagan, “What Ever Happened to Free Enterprise”

November 19, 2012

“Will we, before it is too late, use the vitality and the magic of the marketplace to save this way of life, or will we one day face our children, and our children’s children when they ask us where we were and what we were doing on the day that freedom was lost?”

by Scott L. Vanatter

Before he was elected president Ronald Reagan delivered a series of speeches on various aspects of the American experience. He focused on core principles: our founding, our freedoms, our economy, and especially and repeatedly on the great promise of our being the Shining City on the Hill.

Thirty-five years ago this month, on November 10, 1977 , the future president spoke at the Ludwig Von Mises Memorial Lecture at Hillsdale College, Michigan. His remarks were titled, “What Ever Happened to Free Enterprise.”

With his characteristic aplomb and humor, he laid out in some detail what he saw as some of the prime causes of a poor economy. Too many Americans and its leaders forgot or violated the basic principles of free enterprise.

Prior to laying out his solutions, he first addressed the absolute need for “communication.” Communication between leader and those being led. Communication and cooperation between those being led. He began by establishing the fact that requires “a willing speaker and a willing listener.” More than once in his address, he would emphasize “the communication that has to take place.” Else, we will not see or solve our problems.

Since he embarked on his public policy career, one of his prime criticisms was that “government has caused many of the problems that vex us.” But rather than simply decry the problem though, he personalized the problems by asking, “how much are we to blame?” Quite a bit. And he explained why. To begin with, he said, “government always tends to increase in size and power — it’s built in.” But he went on to explain how we slip into asking the government to solve problems we ourselves should be solving. Further, he added what has become a fourth branch of government: “executive, legislative, judicial,” and now, the “bureaucratic.” He pointed out that government programs are rarely “abolished” – but should be. He said that “inflation [was] caused by one thing” the government. That the “depreciation of the value of money” was a natural benefit to a government whose revenues were tied to inflation.

He humorously related, “Sometimes I think that government fits that old-fashioned definition of a baby: an alimentary canal with an appetite at one end and no sense of responsibility at the other.”

Returning to the “need for communication” he rightly described how we have lost economic dynamism and productivity because of the “economic mythology” which has grown up. In this corrosive philosophy, “profit is a dirty word.” But Reagan rightly pointed out, that “profit, property rights, and freedom are inseparable” and that we “cannot have the third unless [we] continue to be entitled to have the first two.” He decried American’s “bad habit when something goes wrong” of asking the government to take over. He rightly pointed that “intellectuals” sought to “adopt some features of socialism.” As much as they might deny it.

Reagan emphasized the “miracle of capitalism” in creating a very productive society overall. However, he also reissued a warning by “de Tocqueville” against our becoming “a nation of timid animals, with government [as] the shepherd.”

The negative effects of, “regulations” become a “hidden tax,” and worse, a ”misdirection of capital investment” which added “increased administration costs” resulting in less growth, less jobs, and lessening our greatness.

He aptly and humorously illustrated “how much is a billion.” The real problem today is that we now have to envision how much a trillion is. Staggering.

Out-of-control spending is only one danger to our freedoms. “Freedom,” Reagan warned, “is never more than one generation from extinction.” He suggested that we take an “inventory [of] how many things we can do ourselves that we’ve come to believe that only government can do.” In other words, what we have falsely “come to believe that only government can do.” Even more specifically, he worried that “corporations [have] abdicated their responsibility to preserve the freedom of the marketplace.” As much as large corporations have hired lobbyists to effect how and what regulations impact industry, to a great degree they have lost the impulse to “challenge the arrogance of officialdom.” He told the story of small businesses challenging outright over regulation, rather than succumbing.

To illustrate the ignorance of some on college campuses, he turned the “spotlight of truth on the widespread political and economic mythology,” where, “students over-estimated business profits.” In a poll most of them guessed that business makes “45 percent” profit. Worse, their professors estimated, in error, even higher. He said this is a result of a “fairy tale born of political demagoguery.”

He said the “most dangerous myth” is that “business can be made to pay larger share” of taxes. He set out to “explain it simply.” Businesses must be able to pass along their costs, including and especially taxes or they cannot stay in business. Hence, business do not pay taxes, their customers do.

What Reagan went on to point out that what is not spoken enough in our day, that over-regulation results in “indirect business taxes” which “hide the cost of government.”

Worse that than inefficiencies is the loss of freedom which results because, “taxes can be an instrument of social and economic control: to penalize industries and groups.” This also is not spoken of enough in our day. Why not? Reagan laid out the problem. Then simply stated, “we need to put an end to that.”

There are those in our day that make the case that “government spending isn’t a stimulant but a drag on the economy.” However, no one was as effective or consistent in teaching and training fellow citizens that government spending cannot be the best use of our funds or focus.

In the midst of Carter’s economic malaise Reagan called for action on the Kemp Bill. We needed to “cut income taxes” which would “provide capital investment.” Basic economic principles cannot be violated without causing real harm to the economy and our freedoms.

Nearing his conclusion he again called for “the communication we need: liaisons in the fight.” Effective communication between industries and people on behalf of shared freedom could unleash the “incentives of the marketplace” to solve various economic problems, such as, “to find sources of energy.” Not government spending on favored industries or companies which divert funds from more productive targets.

Learning from history and the current events of his day, and peering into the future, Reagan strongly warned against following “Europe’s bad example.” If then, how much more so now?!

Succinctly he pointed out the paradoxical logical “fallacy” that “social tinkering problems can be improved with more tinkering.”

Of course, America is not only “the light of the world, [but also] the refuge for those who yearn to breathe free.” He said we “fail the [free enterprise] system by lacking faith in it.”

So, he asked, “What is to be done?”

The future president knew that it was the “primary responsibility of management” to solve this. In other words, it took informed leaders (or managers) to both educate the people then put into effect the policies needed to solve problems. And there were solutions to these problems.

Two final pointed questions: “Will we, before it is too late, use the vitality and the magic of the marketplace to save this way of life?” Or, “Will we one day face our children, and our children’s children when they ask us where we were and what we were doing on the day that freedom was lost?”

The questions still stand. They must be answered anew every generation, every election, every day.

I have an uncomfortable feeling that I’m saving souls [already] in heaven. You don’t need the convincing that I usually try to do when I’m speaking on this subject. But maybe I can talk to you about the need for communication. . . .

A WILLING LISTENER

But this thing of communication is more important than a willing speaker and a willing listener. It requires imparting some information but also it’s based on the manner in which it’s done. . . .

COMMUNICATION HAS TO TAKE PLACE

But, if can’t save your souls, at least perhaps I might impart some information here that’ll be helpful to you in the communication that has to take place. . . .

GOVERNMENT CAUSES VEXING PROBLEMS

“What did government intend to do about them.” . . . Well may I suggest for your consideration that government has already done too much about them — that, indeed, by government going outside its proper province has caused many, if not most, of the problems that vex us. . . .

ARE WE TO BLAME?

But how much are we to blame for what has happened? Beginning with the traumatic experience of the Great Depression, we the people have turned more and more to government for answers that government has neither the right nor the capacity to provide.

GOVERNMENT TENDS TO INCREASE IN SIZE AND POWER — IT’S BUILT IN

Government, as an institution, always tends to increase in size and power, not just this government — any government. It’s built-in. And so government attempted to provide the answers.

FOUR BRANCHES: EXECUTIVE, LEGISTLATIVE, JUDICIAL, BUREAUCRATIC

The result is a fourth branch added to the traditional three of executive, legislative, and judicial: a vast federal bureaucracy that’s now being imitated in too many states and too many cities, a bureaucracy of enormous power which determines policy to a greater extent than any of us realize, very possibly to a greater extent than our own elected representatives. . . .

ABOLISHED PROGRAMS?

In our own country, there are only two government programs that we have totally wiped out and abolished: the government stopped making rum on the Virgin Islands, and we’ve stopped breeding horses for the cavalry. . . .

INFLATION

Government profits by inflation. . . .

And that’s all that inflation is: a depreciation of the value of money. . . .

Ludwig von Mises said that, “Government is the only agency that can take a perfectly useful commodity like paper, smear it with some ink, and render it absolutely useless.”

HUMOROUS DEFINITION OF GOVERNMENT

Sometimes I think that government fits that old-fashioned definition of a baby: An alimentary canal with an appetite at one end and no sense of responsibility at the other. . . .

TAXES

The people working and earning in the private sector are the only resource that government has.

COMMUNICATION NEEDED RE ECONOMIC MYTHOLOGY

Political demagogues aided by spokesmen for a variety of causes, some worthy in themselves but questionable as to whether they’re a proper concern of government, have created a political and economic mythology widely believed by too many people. This is why we need the communications. This, more than anything else, has increased government’s ability to interfere, as it does, in the marketplace.

PROFIT IS A DIRTY WORD

“Profit” is a dirty word, blamed for most of our social ills. In the interest of something called “consumerism,” free enterprise is becoming far less free. Property rights are being reduced and even eliminated in the name of environmental protection. . . .

PROFIT, PROPERTY RIGHTS CONNECTED TO FREEDOM

Profit, property rights, and freedom are inseparable and you cannot have the third unless you continue to be entitled to have the first two. . . .

BAD HABIT WHEN SOMETHING GOES WRONG

We have fallen into the habit of when something goes wrong — that saying, “They’re ought to be a law.” Sometimes I think there ought to be a law against saying “there ought to be a law.” . . .

INTELLECTUALS ADOPT FEATURES OF SOCIALISM

Intellectuals…contend that our system could be improved by the adoption of some of the features of socialism. It isn’t that these eminent scholars are ignorant; it’s just that they know a number of things that aren’t true.

MIRACLE OF CAPITALISM

In any comparison between the free market system and socialism, nowhere is the miracle of capitalism more evident than in the production and distribution of food. . . .

DE TOCQUEVILLE WARNING: A NATION OF TIMID ANIMALS, WITH GOVERNMENT THE SHEPHERD

de Tocqueville…was attracted by the miracle that was America. … But even then, 130 years ago, he saw signs that prompted him to warn us, that if we weren’t constantly on guard we would find ourselves covered by a network of regulations controlling every activity. And he said, if that came to pass we would one day find ourselves a nation of timid animals, with government the shepherd.

REGULATIONS

Well we are covered by tens and tens of thousands of regulations to which we add about 25,000 new ones each year. . . .

HIDDEN TAX, MISDIRECTION OF CAPITAL INVESTMENT

The misdirection of capital investment costs us a quarter of a million jobs. . . .

But we’re so used to talking billions. Does anyone realize how much a single billion is? . . . But let me really paint the picture for you. If you gentlemen sent your wives out on a shopping spree, and gave them each a billion dollars, and told them not to spend more than a thousand dollars a day, they won’t be home for 3000 years.

FREEDOM: NEVER MORE THAN ONE GENERATION FROM EXTINCTION

But, you know, if you lose your economic [freedom], you lose your political freedom, all freedom. … And it’s never more than one generation away from extinction. Every generation has to learn how to protect and defend it, or it’s gone and gone for a long, long time.

Already, many of us, particularly those in business and industry, there are too many who have switched rather than fight. And it’s time that particularly, some of our corporations learned, that when you get in bed with government, you’re going to get more than a good night’s sleep.

INVENTORY: HOW MANY THINGS WE CAN DO OURSELVES

We should take inventory and see how many things we can do ourselves that we’ve come to believe that only government can do. . . .

HAVE CORPORATIONS ABDICATED THEIR RESPONSIBILITY?

Have the great corporations — sometimes I worry — have they abdicated their responsibility to preserve the freedom of the marketplace out of a fear of retaliation, or a reluctance to rock the boat. If they have, they’re feeding the crocodile hoping he’ll eat them last. . . .

CHALLENGE THE ARROGANCE OF OFFICIALDOM

But why don’t more of us challenge what Cicero called the arrogance of officialdom? . . .

TURN THE SPOTLIGHT OF TRUTH ON THE WIDESPREAD POLITICAL AND ECONOMIC MYTHOLOGY

We can begin by turning the spotlight of truth on the widespread political and economic mythology that I mentioned. . . .

STUDENTS OVER-ESTIMATE BUSINESS PROFITS

Students estimated that business profits in America average 45 percent. That’s nine times the average of business profits in this country. … Professors in the same poll guessed that the profits were even higher.

FAIRY TALE BORN OF POLITICAL DEMAGOGUERY

Then there’s the fairy tale born of political demagoguery that the tax structure imposes unfairly on the low earner with loopholes designed for the more affluent. . . .

MOST DANGEROUS MYTH: BUSINESS CAN BE MADE TO PAY LARGER SHARE

The most dangerous myth is the demagoguery that business can be made to pay a larger share, thus relieving the individual. Politicians, preaching this, are either deliberately dishonest, or economically illiterate, and either one should scare us. Business doesn’t pay taxes, and who better than business to make this message known? Only people pay taxes, and people pay as consumers every tax that is assessed against a business. … If the tax cannot be included in the price of the product, no one can stay in business.

EXPLAIN IT SIMPLY

But if you want to explain it simply, [take a look at] a loaf of bread: … a hundred and fifty one taxes are in that loaf of bread amounting to more than half of the price of bread.

INDIRECT BUSINESS TAXES HIDE COST OF GOVERNMENT

The federal government has used its taxing power to redistribute earnings to achieve a variety of social reforms. Politicians love those indirect business taxes, ’cause it hides the cost of government.

TAXES: AN INSTRUMENT OF SOCIAL AND ECONOMIC CONTROL TO PENALIZE INDUSTRIES AND GROUPS

Taxes … [can] be an instrument of social and economic control to redistribute the wealth and income and to penalize particular industries and economic groups.

WE NEED TO PUT AN END TO THAT

We need to put an end to that. We need a simplification of the tax structure. . . .

GOVERNMENT SPENDING ISN’T A STIMULANT BUT A DRAG ON THE ECONOMY

Government spending isn’t a stimulant to the economy; it’s a drag on the economy. . . .

Again, there’s something we can do. [Pass Kemp tax bill.]

PROVIDE CAPITAL INVESTMENT

It would do all the things that we need to provide investment capital, and to increase productivity and create jobs. We can say this with assurance because it’s been done twice before: in the ’20’s under Coolidge and again in the ’60’s under John F. Kennedy. In the ’60’s the stimulant to the economy was so immediate that even government’s revenues increased because of the broadening base of the economy. . . .

THE COMMUNCATION WE NEED: LIAISONS IN THE FIGHT

Well, I’ve talked about the communications we need. … All of these issues concern each one of us regardless of what our trade or our profession may be. Corporate America must begin to realize that it has allies in the independent businessmen and women and the shopkeepers, the craftsmen, the farmers, and the professions. . . .

A SURPLUS OF GOVERNMENT

I mentioned oil. Is there anyone that isn’t concerned with the energy problem? Government caused that problem while we all stood by unaware that we were involved. … And that’s just to start with. It is nothing more than a first step toward nationalization of the oil industry.

INCENTIVES OF THE MARKETPLACE TO FIND SOURCES OF ENERGY

And, you know, when they tell us about the conservation — of course we should save. No one should waste a natural resource. … Government [should] do one simple thing: get out of the way and let the incentives of the marketplace urge the industry out to find the sources of energy this country needs. . . .

EUROPE’S BAD EXAMPLE

Why can’t we look at other nations that have chosen this path of government intervention before us? Our British cousins, they’re where we’ll be in 15 years if we continue on the present course — if we have that much time. . . .

FALLACY: SOCIAL TINKERING PROBLEMS CAN BE IMPROVED WITH MORE TINKERING

We’ve had enough of sideline kibitzers telling us the system which they themselves have thrown out of sync with their social tinkering can be improved or saved if we’ll only have more of that tinkering or even government planning and management.

AMERICA IS THE LIGHT OF THE WORLD, THE REFUGE FOR THOSE WHO YEARN TO BREATHE FREE

[The American] system…made us the light of the world; the refuge for people from all over the world who just yearn to breathe free. . . .

WE FAIL THE SYSTEM BY LACKING FAITH IN IT

It’s time we recognized that the system, no matter what our problems are, has never failed us once. Every time we have failed the system, usually by lacking faith in it, usually by saying we have to change and do something else. . . .

WHAT IS TO BE DONE? PRIMARY RESPONSIBILITY OF MANAGEMENT

American business [should] be marshaled against those who would destroy it. What specifically should be done? The first essential for the businessman is to confront the problem as a primary responsibility of corporate management. . . .

WILL WE, BEFORE IT IS TOO LATE, USE THE VITALITY AND MAGIC OF THE MARKETPLACE TO SAVE THIS WAY OF LIFE?

Will we, before it is too late, use the vitality and the magic of the marketplace to save this way of life, or will we one day face our children, and our children’s children when they ask us where we were and what we were doing on the day that freedom was lost?

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Frontiers of Freedom, founded in 1995 by U.S. Senator Malcolm Wallop, is an educational foundation whose mission is to promote the principles of individual freedom, peace through strength, limited government, ...